Seasonality, price fluctuation, and changing economic conditions, oh my!
Demand planning and analytics for your inventory processes can feel like juggling one too many balls while standing on a tightrope with no net underneath.
If you’re tired of using the “order plenty of safety stock and cross your fingers/we will sell it eventually” method of demand planning, this post is for you. Instead of paying for warehousing space you don’t need and struggling with overstock, dead stock, and stockout, you can implement a process that will enable you to reliably predict how many units of each product you’ll need. Then, you can focus on seamlessly managing the ordering process.
Let this post serve as your primer for demand planning and analytics strategies. We’ll explore four proven options for demand planning methodology, giving you everything you need to decide about the future of inventory forecasting in your business.
Demand Planning and Analytics: The Basics
Demand planning and analytics are essential to the efficient operation of any direct-to-consumer sales business, but what does demand planning mean?
Demand planning is forecasting the future demand for a product in your inventory. When done properly, demand planning can help you meet customer demand without holding buckets and buckets of safety stock in your warehouse “just in case.”
Effective demand planning and analytics can offer your business multiple benefits, including:
- Increased Sales: Proper demand planning means fewer stockouts. You will sell more products when your customers can always purchase the product they’re looking for from your business.
- Increased Margins: Overstocking products causes you to pay for more warehouse space than you need to store products for your business. When your capital is not invested in stock sitting in your warehouse (and not selling), you free up that capital for more useful purposes.
- Time Savings: The right demand planning solution will reduce manual work, giving you more time to put toward other efforts that matter to your business.
To track your demand planning efforts, you’ll need to begin your process by selecting KPIs (key performance indicators) that are most important to your business. Some KPIs you may want to consider tracking include forecasted vs. actual sales, item location forecast errors, order fill rates, and more.
The first strategy you can use to optimize your inventory is to incorporate machine learning into your demand planning efforts. As the name suggests, machine learning involves using technology capable of gaining insights from past data to pick up on underlying relationships to help forecast future demand for your products.
Using a demand planning tool with machine learning capabilities helps you forecast demand more accurately and efficiently than you can calculate manually. This speed and accuracy allows you to respond more quickly to market changes, supply chain disruptions, and more.
Flieber’s inventory planning tool offers machine learning features that help multi-channel online retailers make supply chain decisions by providing them with real-time sales forecasts and inventory availability data.
“I used to run my supply chain with virtual assistants, but the inaccurate forecasting of my spreadsheet was really hurting my business. Flieber’s forecast and their approach to purchase order management made our business simpler and more stable.” -Amethya, Flieber Customer
Another method you can use related to demand planning and analytics is incorporating “what-if” scenarios into your forecasting. In this strategy, you attempt to increase the accuracy of your forecast by planning for future scenarios, simply asking “what-if?”
Using a “what-if” scenario, you can explore the impact of changes in your competition’s strategies, vendor pricing, shipping timelines, and more.
Flieber’s tool first creates a forecast, then allows users to manipulate that forecast by choosing different algorithms, adding marketing promotions, and more. You can also export the original forecast and make manual changes before re-importing back into the tool, allowing for much customization and planning for any crisis.
Thirdly, you can plan and analyze future demand by using segmentation. In this method, you will divide your product offerings into groups. These groups should be based on characteristics, customers, or other product features.
For example, you may choose to separate perishable goods from nonperishables to allow for differences in shipping and storage, or you may choose to separate products that will need to ship by air from those that will be delivered by land transportation.
One major benefit of segmentation is that this method allows you to identify underperforming segments or segments with poor profit margins easily. This knowledge can help you make decisions about the future of your product line, allowing you to trim the fat when it comes to products or product types that aren’t delivering for your business.
Internal and External Trends
Lastly, you can approach demand planning and analytics by examining internal and external trends. In this classic approach, you will combine data from your sales records with data from external sources to forecast future demand for your product.
- Internal Trends: This data includes historical sales data, upcoming promotions, seasonal products, and more.
- External Trends: You will want to consider external trends related to technology changes, competitor actions, economic changes, and political climate when making your forecast.
It’s important to consider internal and external trends because your business does not operate in a vacuum.
For example, consider a business that sells clothing for school-aged children. Usually, they can expect a seasonal boost during the late summer months for “back-to-school” (internal trend). However, in August of 2020, this may not have been the case, due to the economic and social impact of the COVID-19 lockdowns (external trend). Only by examining internal and external trends can you make an accurate and informed forecast for your business.
Bringing Together the Best Demand Planning and Analytics Strategies
To optimize your inventory processes, you need to use demand planning and analytics strategies. By exploring the four strategies we discussed in this post, you should see that you have several options for demand planning for your business.
Which of these strategies is the best? This question is a bit of a trick: These demand planning and analytics strategies are best when used together.
No single demand planning strategy will allow you to forecast accurately. Bringing together all four strategies discussed in this post will provide you with the best possible results for your demand planning efforts.
Need more help with demand planning and analytics for your business? Flieber offers a demand planning solution that incorporates all of these elements and more. See how Flieber can help your business solve its demand planning challenges today by scheduling a demo!